Tom Hudson: Later is now

Too low inflation and too many people opting out of the job market were the reasons why the Federal Reserve decided not to raise interest rates earlier this month. In the week ahead, new data will indicate how well placed those concerns are.

The stock market has been twisting since the central bank punted, with investors bracing for higher rates “later this year.” Fed Chairman Janet Yellen said that’s when most of her colleagues expect economic conditions will improve enough to raise the cost of borrowing.

If that’s the case, later is now. On Monday, the August reading of the Fed’s preferred inflation gauge will be released. It’s been more than two years since Personal Consumption Expenditures were rising by at least two percent. That’s the Fed’s target inflation rate. It’s not about to be anywhere close to the Fed’s sweet spot anytime soon.

The job market, though, hit the Fed’s target unemployment rate more than a year ago. Instead, the agency is worried about fewer Americans participating in the labor market. Despite job creation averaging 250,000 jobs a month over the past year, millions of people continue opting out of the workforce. It would take some heavy lifting to see a meaningful increase in the labor participation rate when the August employment data is released.

Not enough people counting themselves as employable and lazy prices, by the Fed’s own admission, are what causes it economic anxiety. That’s despite its assessment the economy “has been performing well” and it’s assurance it “expects it to continue to do so.” It’s hoping its confidence will be reflected in the data soon.